News, analysis and developments in health economics

Primary Menu

Tag skilled nursing facilities

On the third Thursday of every month, we speak to a recent graduate about their thesis and their studies. This month’s guest is Dr Feng-An Yang who has a PhD from Ohio State University. If you would like to suggest a candidate for an upcoming Thesis Thursday, get in touch.

Rural hospitals have been financially vulnerable, especially after the implementation of Medicare Prospective Payment System (PPS) in 1983, under which hospitals receive a predetermined, fixed reimbursement for their inpatient services. Under the PPS, they suffer from financial losses as their costs tend to exceed the reimbursement rate due to their smaller size and lower patient volume than their urban counterparts (Medicare Payment Advisory Commission, 2001 [PDF]). As a result, a noticeable number of rural hospitals have closed since the implementation of PPS (Congressional Budget Office, 1991 [PDF]).

This closure trend has slowed down thanks to public payment policies such as the Critical Access Hospitals (CAH) program, but rural hospitals are continuing to close their doors and a total of 107 rural hospitals have closed from 2010 to present according to the North Carolina Rural Health Research Program. This issue has raised public concern for rural residents’ access to health services and health status, and how to keep rural hospitals open has become an important policy priority.

Which data sources and models did you use to identify key events?

My dissertation investigated the impact of the CAH program and hospital closure by compiling data from various sources. The primary data come from the Medicare cost report, which contains detailed financial statements for nearly every U.S. hospital. Historical data on health care utilization at the county-level are obtained from the Area Health Resource File. County-level mortality rates are calculated from the national mortality files. Lastly, the list of CAHs and closed hospitals is obtained from the Flex Monitoring Team and American Hospital Association Annual Survey, respectively. This list contains information on the hospital identifier and year of event which is key to my empirical strategy.

To identify the impact of key events (i.e., CAH conversion and hospital closure), I use an event-study approach exploiting the variation in the timing of events. This approach estimates the changes in outcome for the time relative to the ‘event time’. A primary advantage of this approach is that it allows a visual examination of the evolution of changes in outcome before and after the event.

How can policies relating to rural hospitals benefit patients?

This question is not trivial because public payment policies are not directly linked to patients. The primary objective of these policies is to strengthen rural hospitals’ financial viability by providing them with enhanced reimbursement. As a result, it has been expected that, under these policies, rural hospitals will improve their financial conditions and stay open, thereby maintaining the access to health services for rural residents. Broadly speaking, public payment policies can lead to an increase in accessibility if we compare patient access to health services between counties with at least one hospital receiving financial support and counties without any hospitals receiving financial support.

I look at patient benefits from three aspects: accessibility, health care utilization, and mortality. My research shows that the CAH program has substantially improved CAHs’ financial conditions and as a result, some CAHs that otherwise would have been closed have stayed open. This in turn leads to an increase in rural residents’ access to and use of health services. We then provide suggestive evidence that the increased access to and use of health care services have improved patient health in rural areas.

Did you find any evidence that policies could have negative or unexpected consequences?

Certainly. The second chapter of my dissertation focused on skilled nursing care which can be provided in either swing beds (inpatient beds that can be used interchangeably for inpatient care or skilled nursing care) or hospital-based skilled nursing facilities (SNFs). Since the services provided in swing beds and SNFs are equivalent, differential payments, if present, may encourage hospitals to use one over the other.

While the CAH program provides enhanced reimbursement to rural hospitals, it also changes the swing bed reimbursement method such that swing bed payments are more favorable than SNF payments. As a result, CAHs may have a financial incentive to increase the use of swing beds over SNFs. By focusing on CAHs with a SNF, my research shows a remarkable increase in swing bed utilization and this increase is fully offset by the decrease in SNF utilization. These results suggest that CAHs substitute swing beds for SNFs in response to the change in swing bed reimbursement method.

Based on your research, what would be your key recommendations for policymakers?

Based on my research findings, I would make two recommendations for policymakers.

First, my research speaks to the ongoing debate over the elimination of CAH designation for certain hospitals. Loss of CAH designation could have serious financial consequences and subsequently have potentially adverse impacts on patient access to and use of health care. Therefore, I would recommend policymakers to maintain the CAH designation.

Second, while the CAH program has improved rural hospitals’ financial conditions, it has also created a financial incentive for hospitals to use the service with a higher reimbursement rate. Thus, my recommendation to policymakers would be to consider potentially substitutable health care services when designing reimbursement rates.